N.J. rate hikes bring new worries about long-term care insurance

Sharp rate increases for long-term care insurance in New Jersey have added to the growing uncertainty over how residents will pay for care in a state with a swelling elderly population and nursing-home costs that are among the highest in the nation.

The New Jersey Department of Banking and Insurance has approved premium increases of 15 percent to 45 percent on 16 different long-term plans in the last year. That’s in addition to steady increases that have been occurring since 2009.

Besides the premium hikes, insurers have put caps on coverage and have begun to screen applicants more stringently.

Anita Lerer, a 75-year-old widow from Teaneck, was among those whose premium was slated to go up by 45 percent this spring. She bought a policy through her former employer in 2005 and received a notice a few months ago that the premium would rise from $248 to $360 a month. Lerer, who lives on a fixed income and is still paying a mortgage on her home, saw it as a choice between her present-day needs and the future security she wants to have if she ends up suffering from a long illness.

“I’ve always been someone who’s understood the importance of having good health insurance,” Lerer said. “But I never expected the cost to go up that much.”

Medicare pays for “medically necessary” skilled nursing care in either a facility or at home, but only for short-term periods while someone is recovering from a specific ailment or undergoing rehabilitation. It does not cover long-term custodial care, which is the kind of assistance needed by someone who is no longer able to dress, bathe, monitor medications or perform other daily activities on their own. It is this type of round-the-clock care, whether received in one’s own home or in a nursing home, that can quickly drain an older person’s remaining income and assets, eventually forcing them to apply for Medicaid.

Premiums for long-term care have risen as the economy and lagging interest rates cut into investment returns for insurance companies, causing concerns about how they will pay off future claims. Several major companies such as MetLife and Prudential Have pulled out of the long-term care insurance business altogether.

Jesse Slome, executive director of the American Association for Long-Term Care Insurance, said the premium increases and coverage changes were necessary because of a number of “wrong assumptions” that had been made by the industry.

For example, the actuaries didn’t accurately estimate the costs for people with chronic illnesses for which new life-extending treatments became available, Slome said.

The AARP New Jersey has been critical of the cost increases, and has complained that public hearings should have been held by the state insurance department before it approved the hikes.

“We think there needs to be more transparency in this process,” said Marilyn Askin, a member of the AARP’s executive council. “People need to understand what they’re buying and companies need to justify their requests for rate increases.”

Lerer, the Teaneck widow, was reluctant to give up her policy and ended up negotiating a smaller increase with her insurer, in exchange for decreases in her benefits.

Rather than receiving coverage for up to $300 a day in care for a period of three years, she will be covered for up to $250 a day. While that would likely be enough for her to receive in-home or assisted-living care, it falls short of the $335-a-day median cost of a private room in a North Jersey nursing home. The annual cost here — $122,275 per year — is 66 percent higher than the national median yearly cost of $81,030, according to estimates from Genworth Financial, a company that sells long-term care insurance and produces an annual cost-of-care report.

Advocates worry the increase in premiums will drive people away from buying long-term care insurance even as the future generations of seniors are expected to live longer, thanks to better — but more costly — treatments for chronic conditions. Only 8 million Americans have policies, a number that has remained static over the past decade despite concerns about whether government assistance programs will be able to meet the needs of the aging baby boom generation.

“Being in a nursing home, or thinking about how you’re going to pay for it — this is just an issue most people don’t want to think about,” said David Knowlton, president of the New Jersey Health Care Quality Institute. “They’re in denial.”

The coverage changes have made long-term-care insurance a more dubious investment in the eyes of many financial planners. In addition, the cost has made the insurance less appealing to younger buyers in their 50s who are still paying mortgages and their children’s college bills. And coverage is very difficult to buy after age 65, said Gary Melnikoff, a Paramus-based long-term care insurance agent.

“Obviously the longer people wait, issues with their health come up more and more, and they run the risk of becoming uninsurable,” Melnikoff said.

The typical clients he sees are like Clair Cupo of Wayne, who learned how expensive care can be after having helped care for her mother before her death at age 92

“It occurred to me that I didn’t have any children of my own so there was nobody who could do that for me if I get sick,” Cupo, 67, said.

Medicaid pays the bills for two-thirds of all nursing home patients in New Jersey, and this safety net is one of the reasons that few people see the need to buy long-term-care insurance, experts say. “They think government is going to be there to pay for it,” Slome said. “It’s the people who recognize that in 10, 15 or 20 years that those benefits might not be there, those are the ones who see the need to do some planning of their own.”

Melnikoff thinks states should offer a tax credit to policyholders to encourage people to buy long-term care policies, coverage that could keep them from having to apply for Medicaid.

New Jersey, however, doesn’t think it should be in the role of advocating that people buy long-term care insurance over other possible options of saving for their future needs, said Marshall McKnight, an insurance department spokesman.

“We say long-term care insurance is not for everyone.” McKnight said. “It’s a very personal decision over whether to buy it. Some people might choose to save and they think that’s the best approach, or others might choose to buy an annuity or some sort of life insurance policy.”

Last year, Congress had debated creation of a government-run voluntary program to help Americans buy long-term care. But the Class Act, which would have been funded by premiums paid by workers rather than government subsidies, was dropped because the Obama administration predicted younger workers wouldn’t sign up and the premiums would end up being too expensive.

“Neither political party seems willing to tackle the long-term care issue,” Slome said. “They’re just kicking the can down the road.”

With baby boomers now joining the Social Security rolls, however, many health care experts say long-term care costs will continue to swell and overwhelm state and federal coffers.

“We’re going to have to address this or it’s going to become a crisis,” Knowlton said.